Despite rosy picture, billions owed from last session

AUSTIN - A brighter budget forecast has Gov. Rick Perry and other top GOP leaders calling for tax relief despite the state's multibillion-dollar needs in Medicaid, transportation and water, plus an ongoing lawsuit over public school funding.

To hear leaders tell it, they can fund crucial services while reducing taxes, all within the confines of a fiscally conservative budget.

There may just be one thing standing in their way: math.

Texas Comptroller Susan Combs estimates the state will have $8.8 billion left unspent in the current budget, revenue growth in the next two years and $11.8 billion in the state savings account known as the Rainy Day Fund.

Lawmakers, however, face billions in expenses left from last legislative session, when they grappled with a budget shortfall, including a Medicaid IOU estimated at $4.7 billion and a $2 billion school payment delayed until this session.

Rainy Day Fund

Caseload and enrollment growth will put additional demands on human services and education in the next two years; some are calling on lawmakers to restore $5.4 billion in education cutbacks and leaders say investment in transportation and water is crucial.

Not only that, Perry and others want to put the state's fiscal house in order by reducing the budget's reliance on nearly $5 billion in levies collected for specific purposes, but left unspent to help balance the budget.

At the same time, he has put restrictions on how much can be tapped from the Rainy Day Fund, saying it should be used only for one-time expenses.

The result is likely to be much less flexibility in spite of a projected 12 percent increase in available state funding.

"If you want more of something, tax it less. If you want less of something, tax it more," Perry said in an interview after calling for tax relief on the legislative session's opening day. "That's a little simplistic, but it's true."

Lt. Gov. David Dewhurst said possibilities include a bigger homestead exemption in the property tax and enlarging the current small-business-tax exemption.

Another key Senate Republican suggested business-tax relief this legislative session could be a step toward eliminating the levy.

Even some who support tax relief acknowledge that the last time they cut local school property tax rates, the reduction was short-lived.

Critics deplore cut

Critics see political opportunism, especially since Perry has left the door open to another run for president in 2016.

"Gov. Perry, one more tax cut won't win you the 2016 Republican primary. Do good for Texas this session: fix schools and roads, water, health," tweeted new U.S. Rep. Joaquín Castro, a Democrat from San Antonio who left the Texas Legislature for Congress.

A Perry spokeswoman said the governor is focused on the session and Texas' best interests.

State Rep. Dan Branch, a Dallas Republican who's part of House Speaker Joe Straus' leadership team, said lawmakers always should look at tax laws to be sure they are reasonable and see if there is room for relief, but also cited the billions in spending demands already known.

"You've got to look at the math, big picture," he said.

Texas, Branch said, should "claim victory" with its record of attracting growth with overall low taxes and low regulation, and turn its attention to the future.

"You could have a state that has light regulation and low taxation, but if you can't turn the lights on, if you don't have water, if you can't educate your child - at some point, just having light regulation and low taxation will not keep people coming here," he said.

Straus, R-San Antonio, was more circumspect when asked about tax relief at a midweek news conference with Perry and Dewhurst.

Tax relief promoted

"We have a record proving that tax relief should be a priority. The details of that and the potential for that are yet to be determined. But we also know that we have some unfinished business from the last session to take care of, and a growing state, and a lot of demands for priorities," Straus said.

The Center for Public Policy Priorities, which advocates for programs for lower-income Texans, estimated it would take $108 billion in general revenue in the next budget cycle to get back to the spending level of two years ago, taking into account population growth and inflation.

"We can't afford to cut taxes," said F. Scott McCown, the center's executive director and a former state judge who presided over past school funding litigation - an issue that once again has the state in court. "I just don't have any sense that people are looking for tax cuts. I think they're looking for strengthening education and other basic infrastructure."

Rep. Harvey Hilderbran, a Kerrville Republican who has been House Ways and Means chairman, said when Combs revealed her estimate that he intends to offer a package including business and property tax relief.

"Without a doubt, this tax relief will be more meaningful" than the tax package approved in 2006 in response to a court order to revamp school funding, Hilderbran said.

In the 2006 package, lawmakers and Perry cut local school property tax rates, revising the state franchise tax to replace part of the revenue. That business tax consistently has come below its original projections, meaning other revenues have had to pick up more of the cost of the property tax relief.

Dale Craymer, president of the business-based Texas Taxpayers and Research Association, said $1 billion to $3 billion in tax relief this session may not be noticed by some with a statewide property tax tab topping $40 billion annually. That amount, he said, would be noticeable if applied to the business tax, which yields about $4.6 billion annually.

Social necessities

Senate Finance Committee Chairman Tommy Williams, R-The Woodlands, said he and others are working on the budget and tax package. He cited the potential for a bigger homestead exemption and said lawmakers could make some progress toward reducing the business tax.

"The priority for the money has to be to go back and restore the cuts, and, of course, to fund Medicaid," Sen. Judith Zaffirini, a Laredo Democrat.

"Tax relief is always a wonderful topic, and it's very popular and it's easy to support," she said. "But first and foremost, we have to ensure that we are meeting our responsibilities to the people of Texas. Once we are satisfied that that has been done, then let's talk about other important issues, including tax relief."